Rising Consumption Boosts Grocery Sector; Segment in Transformation to Emerging Models

 

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Research Brief
August 2018
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Developing Trends
Aldi to drop dollar-store look while keeping discounted prices. Over the next several years, Aldi will spend more than $3 billion remodeling 1,300 stores as it seeks to compete with more upscale brands like Safeway and Whole Foods. The expanded and redesigned stores will include more produce and organic products.
Lidl changes approach to maximize profitability. Since entering the U.S., Lidl not only scaled back expansion plans, but also chose to adjust the size of some new stores moving forward. It will begin leasing locations as small as 15,000 square feet — less than half the size of the originally outlined stores.
Evolving retail landscape prompts Publix to reinvest in brick-and-mortar locations. This year, Publix will use some of its $1.5 billion investment budget to remodel existing locations. This includes upgrading technology and revamping layouts to satisfy current consumer preferences.
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Rising Consumption Boosts Grocery Sector;
Segment in Transformation to Emerging Models
Grocery stores gather momentum as retail sales record big gain. For the third consecutive month, core retail sales posted strong year-over-year growth, matching the three-month average of 5.6 percent. A range of economic factors have helped bolster consumer confidence over the past few months, leading to this elevated level of spending. Numerous retail categories reported robust sales in July, including grocery stores, which logged 3.8 percent annual growth. This measure well exceeds the category’s 10-year average of 2.6 percent.

Grocers refine strategies as consumer preferences change. Grocery stores continue to transform with the evolving retail climate by improving customers’ overall experience. Some grocers, such as Kroger, have put the brakes on expansion as they reinvest more capital back into existing brick-and-mortar locations,

integrating dine-in options, wine bars and more quality products to bolster foot traffic. The features now included in grocery stores have made them a one-stop shop for many consumers. Conversely, smaller formats have also gained popularity as grocers attempt to maximize sales per square foot. Chains like Hy-Vee and Meijer have adopted this concept, seeking to penetrate urban markets.

Smaller grocery chains may feel brunt of transitioning industry. Oversaturation of the grocery market remains a concern, particularly as e-commerce becomes a bigger part of the sector. Although Internet sales have yet to truly disrupt the grocery industry, they may lead to some smaller chains surrendering market share due to limited budgets for investment into online infrastructure and reinvestment into physical stores.

5.6% Core Retail Sales Growth Y-O-Y* 3.8% Grocery Store Sales Growth Y-O-Y*
* Through July
Core retail sales exclude auto and gasoline sales
Sources: Marcus & Millichap Research Services; Bloomberg; Convenience Store News; Food Dive; Moody’s Analytics
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